Daily Telegraph 27 February 2018
The Royal Commission into financial services kicked off with public hearings.
The second most common source of complaints so far have been recorded against superannuation funds. This makes sense, our $2 trillion superannuation system is now the second biggest part of the financial sector.
If only the full truth were known, there would be riots.
There is a reason the powerful industry superannuation fund lobby wanted superannuation carved out of the Royal Commission despite it being a systemically important part of Australia’s financial system.
The reason is money. Pure self-interest. As former NSW Premier Jack Lang famously said eight decades ago “in the great race of life, always back self-interest, at least you know it’s trying.”
Industry superannuation funds are some of Australia’s biggest self-promoters.
Last year they spent $37 million on advertising – much of it to stop laws to make super funds work in the public interest – more transparency and fewer rorts.
The $37 million of workers’ savings spent on advertising is closer to a justifiable business expense than direct cash payments to political campaigners such as unions.
Yet this is precisely the great dirty secret of financial services: over the past decade industry super has sent over $50 million of workers’ retirement savings to support affiliated trade unions. The same unions that have been suffering chronically declining membership.
Australian Electoral Commission returns show the opaquely named payments as “other receipts” - these are simply direct payments of real cash to unions.
Without change, payments from industry super funds to unions will balloon to $22 million each year within a decade.
Industry super funds hilariously claim to be “not for profit” and many people believe it.
This claim would have no credibility were these payments better known.
As union representation heads to less than 10 per cent, unions are getting richer than ever on workers’ hard earned cash.
There is a litany of examples where unions have put their own interests ahead of the people they claim to represent.
From family board appointments to cover ups, to failed mergers to secret payments, it is a smorgasbord of self interest.
In coming weeks, I will profile these issues with real examples which should be the focus of the Commission’s attention.
There are two sets of laws the union movement will do anything to preserve because they provide the cover for this great transfer of wealth from people to union bosses.
The first is the rule that lets super funds have any type of board it wants.
The board of choice for industry super funds is a one where unions take 50 per cent of the seats.
50 per cent of the board while representing 10 per cent of workers! Sound like a time warp?
It is a remnant of the 1980s when super was set up and union representation levels were closer to 50 per cent.
For the last 30 years, this has locked effective control of industry super in the hands of unions.
Major financial reviews for both Liberal and Labor governments have recommended this law be changed to require compulsory independent directors.
In 2010 former ASIC Deputy Commissioner Jeremy Cooper’s structural review of superannuation recommended at least one third of superannuation directors be independent.
In 2015 former Commonwealth Bank and Future Fund Head David Murray’s Financial System Inquiry recommended there be a majority of independent directors.
These repeated warnings reflect the fact no other financial sector law has remained static for 30 years.
To put this into perspective, in 1998, the Australian Prudential Regulation Authority (APRA), the financial sector’s prudential regulator was 10 years away from establishment.
The Australian Stock Exchange was just one year old and the global financial crisis was 20 years away.
No one would argue any financial or public institution should have a 1988 governance model in 2018.
Doing so would mean banks would hold next to no mandatory capital against their liabilities, there would be no ASX corporate governance disclosures, no UN principles of responsible investment and no comprehensive supervision of major financial institutions.
The second law the industry super tycoons want to keep is the very mechanism for receiving big money through industrial laws.
Each and every year, industry super funds receive over $9 billion in compulsory super contributions which are allocated by the Orwellian Fair Work Commission.
Award workers who do not choose a fund are automatically allocated to a fund the Fair Work Commission has picked after receiving advice from the union.
The union owns the fund and takes half the board seats.
Howling conflict some would say.
It might be better described as making the unions judge and jury or putting Dracula in charge of the blood bank.
These FWC-selected funds become compulsory for small businesses – they cannot select a different fund for their employees. In many cases, workers are also unable to get out of an industry fund into another.
Both of the major reviews conducted in the past decade have also recommended this system be dismantled.
Unions have done everything to preserve their status as financial tycoons.
But they surely won’t survive the Royal Commission with their governance and Fair Work Commission lurks intact.